I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world data.
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1$\begingroup$ "real-world data" as opposed to... "fake data" ;) Interesting question though. $\endgroup$– SRKXCommented Jul 4, 2011 at 6:54
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$\begingroup$ @JSmaga: Well, not artificially created pseudo-random simulation data but historic real option price data. $\endgroup$– vonjdCommented Jul 4, 2011 at 8:14
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7$\begingroup$ funny how much a bounty can actually wake up people.... $\endgroup$– SRKXCommented Jul 5, 2011 at 14:35
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3 Answers
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I did some digging and found the following papers - most of them offering quite a distinct perspective compared to classical option pricing theory!
- Stock Options as Lotteries by Brian H. Boyer et al. (2011)
- The Efficiency of the Buy-Write Strategy: Evidence from Australia by Tafadzwa Mugwagwa et al. (2010)
The following is my favorite: You could do some backtests on your own with freely available data (using the VXO as volatility information) and with any spreadsheet - easy and elegant:
- How Students Can Backtest Madoff’s Claims by Michael J. Stutzer (2009)
- Loosening Your Collar: Alternative Implementations of QQQ Collars by Edward Szado et al. (2009)
- A Study of Optimal Stock & Options Strategies by Mihir Dash et al. (2008)
- Is There Money to Be Made Investing in Options? A Historical Perspective by James S. Doran et al. (2008)
EDIT:
I will update this answer from time to time when new interesting papers arive:
EDIT 2:
I just published a blog post where I replicate the abovementioned paper by Stutzer (2009):
In the post, I provide the fully documented R code for your own experiments. For details please consult the post.
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1$\begingroup$ There seems to be a more recent version of the paper "Madoff Mess Motivates" under the title "How students can backtest Madoff's Claims" which reads very nicely. Edit: heres the link: leeds.colorado.edu/asset/burridge/backtestmadoffsclaims.pdf $\endgroup$– user1157Commented Aug 4, 2011 at 12:13
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Since I, too, have been very interested in this question, I will share some of my findings in the dual hope of encouraging comments on the papers and eliciting more activity on this question.
- Ammann, Skovmand, and Verhofen (2008): Implied and Realized Volatility in the Cross-Section of Equity Options
- Ang, Bali, and Cakici (2010): The Joint Cross Section of Stocks and Options
- Bali and Murray (2011): Does Risk-Neutral Skewness Predict the Cross-Section of Equity Option Portfolio
- Cao and Han (2011): Cross-Section of Option Returns and Stock Volatility
- Constantinides, Jackwerth, and Savov (2011): The Puzzle of Index Option Returns
- Deng (2008): Volatility Dispersion Trading
- Driessen, Lin, and Hemert (2011): How the 52-Week High and Low Affect Option-Implied Volatilities and Stock Return Moments
- Jones and Shemesh (2010): The Weekend Effect in Equity Option Returns
answered Jul 22, 2011 at 21:21
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Option Traders Use (very) Sophisticated Heuristics, Never the Black–Scholes–Merton Formula
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$\begingroup$ I think only the third one is relevant to the question $\endgroup$– vonjdCommented Jul 5, 2011 at 17:56
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$\begingroup$ @vonjd: The third one (Goyal and Saretto (2007)) is probably one of the best references in this area, IMO. $\endgroup$ Commented Jul 22, 2011 at 21:22
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1$\begingroup$ And the first one by the Black Swan himself is like reading hieroglyphics. Wow. $\endgroup$ Commented Oct 1, 2011 at 1:54